Most credit cards come with a function that allows you to take out a cash advance. This means that you can easily access cash from your credit limit. However, this is usually an expensive way of borrowing. Credit cash advances can be convenient and potentially useful in a tight spot. Because the money is borrowed as part of a credit limit, any cash advance taken will have to be paid back with interest.

How Credit Cash Advances Work

Most credit cards allow customers the option to withdraw cash against their overall credit limit. The limit for the amount of cash available as an advance may be lower than the overall credit limit on the card. Usually, the advance can be accessed by withdrawing it from an ATM using the PIN number for the card. However, some card providers will issue a check that can be paid in at the bank.


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Cost of Credit Cash Advances

Credit cash advances are usually a costly way of borrowing. Cash advances almost always come with a significantly higher rate of interest to be paid than regular transactions carried out using the card. There will be no grace period before the interest becomes payable. Many credit card companies charge a fee for customers to access credit cash advances. There may also be a fee payable if the money is withdrawn at an ATM.


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Advantages of Credit Cash Advances

A credit cash advance may be useful in certain situations, particularly if the customer needs access to emergency funds in a hurry. This is because the credit cash advance will probably be very quick to obtain from an ATM. They are also easy to arrange, as most credit cards come with the option to take a certain amount of money out as a cash advance.


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Disadvantages of Credit Cash Advances

The main disadvantage of a credit cash advance is the high rate of interest likely to be applied. Interest is applied at a higher rate than the rest of the balance on the card, and the balances are kept separate. This means that there will be one balance for regular spending on the card and one for cash advances. When the minimum payments are made, these will be likely to count against the balance with the lower interest rate, with the cash advance balance accruing a high level of interest over time. As many customers are unaware of this, this can make credit cash advances more expensive than expected.


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Credit Cash Advances and Credit Ratings

Credit cash advances cannot directly influence a person's credit score one way or the other. However, taking out a credit cash advance will increase the overall balance owed on the card. This increases the person's credit utilization ratio, meaning the percentage of available credit that the person is currently using. A high credit utilization ratio can adversely affect a credit rating. If taking a cash advance out renders the user unable to make the minimum monthly repayments or causes them to exceed the overall credit limit on the card, this can also damage the person's credit rating.


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Credit Cash Advances vs. Payday Loans

Payday loans are often referred to as cash advances. However, they differ significantly from credit cash advances. Payday loans are very short-term loans which, unlike credit cards, do not require a credit check. Instead, they take into account the earnings of the applicant and have to be paid back by the next payday. Like credit cash advances, these loans are expensive because very high fees are chargeable. If the loan isn't repaid by the agreed date, very high levels of interest are accrued. These can often exceed 100% APR.


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Risks of Credit Cash Advances

The main risk of credit cash advances is an individual falling into a level of debt that they can't realistically expect to pay back. Cash advances are always an expensive way to borrow but are a particularly bad idea if they are being used to pay bills or to buy items that would otherwise be completely unaffordable. Using a credit cash advance is also a risky option if the individual knows that they are likely to file for bankruptcy. That's because using a credit advance is this circumstance could be deemed as fraud.


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Merchant Cash Advances

Merchant cash advances are a type of credit cash advance available to businesses. They are most commonly used as a method of financing by businesses with poor credit ratings and carry the same risks and expenses as regular credit cash advances. The business will usually pay the advance back using proceeds from sales. This type of cash advance could be appealing to some businesses because providers don't always use credit rating to approve the advance. Instead, they may grant it based on the cash flow situation of the business.


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Employee Advances

Advance cash from an employer is a service that many people confuse with credit cash advances. However, this type of advance is distinctly different. Some employers choose to offer their staff the option of taking out a cash advance on their paycheck or a payday loan. The terms of these borrowing agreements range widely between employers. However, they will often be less expensive than a credit cash advance because many employers charge little or no interest and don't ask for any upfront fees.


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Alternatives to Credit Cash Advances

Many people choose a credit cash advance when they are in a short-term financial tight spot. However, it may be worth considering another form of borrowing that doesn't come with such high interest. Assuming that the borrower has a good credit rating, a personal loan is a less expensive way of borrowing, although this may take longer to arrange. The borrower may instead decide to go overdrawn on their bank account. While this will most likely incur charges, no interest will accrue on the overdrawn amount.


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